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The government has disallowed USD 1 billion expense of Reliance Industries on the flagging KG-D6 gas fields for not implementing the approved field development plan, Oil Minister M Veerappa Moily said today.

"The average gas production from KG-DWN-98/3 (KG-D6 block) during the current year was about 29.81 million standard cubic meters per day as against 86.73 mmscmd approved in the field development plans for D1, D3 and MA fields in this block, which are currently on production," he said.

The output has dropped after hitting a peak of about 62 mmscmd in August, 2010.

Moily said the output has fallen because one-third of the wells on D1 & D3 gas filds as well as on MA oil and gas field have ceased to produce due to water loading/sand ingress in wellbores.

Also, the company has not drilled "the required number of gas producer wells in D1&D3 fields," he said in a written reply to a question in Rajya Sabha here.

"Government has not accepted the contention of the contractor (RIL) and have ordered proportionate disallowance of cost of production facilities amounting to USD 1.005 billion for not fully implementing approved development plan," he said.

RIL, thereafter, initiated arbitration proceedings. The company and the government have appointed arbitrators to decide on the issue.

Moily said D1 & D3, two of the 18 gas discoveries made till date in the KG-D6 block, was to produce 80 mmscmd in the current fiscal. Against this, they averaged 23.94 mmscmd in period up to October.

"As a result, as against the projected cumulative gas production of 0.605 Trillion cubic feet from D1&D3 fields from April 1, 2012 to October 31, 2012, the actual cumulative gas production was 0.181 Tcf for the same period," he added. RIL, he said, has stated that any additional wells in D1&D3 fields may not help improve either production rate or recovery considering the reservoir behaviour.

The company has so far drilled only 22 wells on D1&D3, of which only 18 have been put on production. It was to drill a total of 31 wells as per the approved field development plan.

"Substantial variance in reservoir behaviour and character has been observed vis-a-vis the prediction, and there seem to be reservoir constraints in achieving the gas production rates," Moily quoted RIL as saying.

Also, pressure decline was several times higher than originally envisaged and early water production in some of the wells was not predicted in initial reservoir simulations.